AIG took a small step in the long road to recovery on Thursday, clinching a $25bn debt for equity swap with the Federal Reserve that will give the authorities a large stake in two of the government-owned insurer’s most prized businesses.

Under the agreement, the New York Fed will receive $16bn in preferred equity in American International Assurance (AIA), AIG’s Asian arm, and $9bn in preferred shares of American Life Assurance Company (Alico), an international life assurer.